Fact Check: A Policy That Helped Save Struggling Main Street Businesses

February 12, 2021 — Blog   

House Democrats are pushing a partisan bill while rejecting crucial changes that could help workers, families, and Main Street businesses. During Thursday’s mark-up, members recalled how one provision in particular in the bipartisan CARES bill was crucial to saving American businesses.

Congress Offered Bipartisan Support to Struggling Main Street Businesses Facing Losses

Struggling Main Street businesses faced severe losses last year, but thanks to CARES, many were able to keep their doors open thanks to how our tax code supports businesses. Similar to relief in prior emergencies, Congress provided $150 billion of liquidity—in another word: cash—to businesses. This was not a bailout or carveout, but simply allowing Main Street businesses to deduct legitimate business losses immediately and to keep more of what they earned.

Some Democrats now argue that this support was unnecessary, calling for a retroactive tax increase on businesses that are restoring and rebuilding our economy.

How the Relief Works

Here’s how the policy (referred to as “NOL carrybacks”) works: If a local pizza shop has a busy year (the high school football team made it to playoffs), they bring in more money and therefore owe more in taxes. But if that pizza shop had a slow year (the football team, sadly, was in a “rebuilding” season), they could have losses to be offset against tax liability in other years.

The bipartisan CARES Act provides a cushion to that restaurant by allowing them to use those this year’s losses against prior-year income, going back five years. Additionally, individual business owners with excess business losses in 2018, 2019, and 2020, are also able to “carry back” those losses to the preceding five taxable years.

What does this accomplish? The pizza shop’s losses will reduce its taxes owed in prior years, and the resulting tax refund will provide cash necessary to maintain payroll and business operations.

Democrats Oppose Support for Main Street Businesses

Instead of looking for additional ways to shore up Main Street, Democrats have sought to eliminate the NOL carryback provision that so many businesses have relied upon—first in a partisan bill last year, and again this week with their calls for a retroactive tax increase.

SUBCOMMITTEE: Select Revenue Measures